Hello, ladies and gentlemen. Well, to Futu Holdings’ First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. [Operator Instructions]. I would now like to turn the conference over to your host for today's conference call, Daniel Yuan, Chief of Staff to CEO and Head of IR at Futu. Please go ahead, sir.

Thanks, operator. And thank you for joining us today to discuss our first quarter 2023 earnings results. Joining me on the call today are Mr. Leaf Li, Chairman and Chief Executive Officer; Arthur Chen, Chief Financial Officer; and Robin Xu, Senior Vice President. As a reminder, today’s call may include forward-looking statements, which represent the Company’s belief regarding future events, which by their nature are not certain and are outside of the Company’s control. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the Company’s filings with the SEC, including its annual report on Form 20-F. With that, I will now turn the call over to Leaf. Leaf, will make his comments in Chinese and I will translate.

[Foreign language] Thank you all for joining today. As of quarter end, our paying clients surpassed 1.5 million representing 15% growth year-over-year. Based on paying client growth in the first five months of the year, we expect to add 150,000 paying clients in 2023. In the first quarter, Hong Kong market contributed over one-third of paying client growth as client acquisition accelerated on the back of the rally of China technology names in January. We also witnessed resilient paying client growth in Singapore, as we continue to strengthen our brand awareness through offline events and promoted demand for lower-risk fund products through industrial education. [Foreign language] We continue to broaden our trading product offerings and upgrade trading features in various markets. We became the only broker in Hong Kong that allows clients to trade certain U.S. stocks and ETF 24 hours a day, five days a week, thereby enhancing the flexibility and accessibility of the U.S. stock trading. We also launched leverage foreign exchange trading in Singapore, where clients can trade 36 major currency pairs on margin to take advantage of volatility in the foreign exchange market. In the U.S., we've rolled out multi-leg options strategy orders for U.S. stocks. This advanced trading function streamlines client's trading experience and will attract more sophisticated options traders to our platform. Despite market weakness and headline regulatory news, our expanding product suite and premier user experience led to another quarter of over 98% paying client retention rate. [Foreign language] Total client assets increased by 21% year-over-year and 12% quarter-over-quarter to HK$466 billion due to higher mark-to-market value of client stock holdings and net asset inflow. In Singapore, total client assets and average client assets increased by 28% and 22% sequentially, attributable to solid net asset inflow across client cohorts and favorable U.S. equity…

Thanks, Leaf and Daniel. Now please allow me to walk you through our financial performance in the fourth quarter. All numbers are in Hong Kong dollars unless otherwise noted. Total revenue were HK$2.5 million, up 52% from HK$1.6 billion in the first quarter of 2022. Brokerage commission and handling charge income was HK$1.1 billion, an increase of 12% year-over-year and 3% Q-over-Q. The year-over-year increase was mainly driven by a higher blended commission rate of 8.8 basis points, a Q-over-Q increase was primarily attributable to higher U.S. stock trading volumes. Interest income was HK$1.3 billion, increase of 125% year-over-year and 14% of Q2. The increase was driven by higher interest income from cash deposits and higher securities lending income. Other income was HK$126 million, up 29% year-over-year and 34% Q-over-Q. The year-over-year and the Q-over-Q increase were both driven by higher fund distribution income. Our total cost was HK$291 million, increase of 28% from HK$228 million in the first quarter of 2022. Brokerage commission and handling charge expenses was HK$72 million, down 25% year-over-year and up 13% Q-over-Q. The expenses didn't move in tandem with our brokerage commission and handling charge income mainly due to cost savings from our U.S. self-clearing business. Interest expenses was HK$131 million, up 234% year-over-year and down 28% Q-over-Q. The year-over-year increase and the Q-over-Q decrease were both driven by interest expenses associated with our securities lending business. Processing and servicing costs was HK$88 million, down 5% year-over-year and the 9% Q-over-Q. The year-over-year decrease was mainly due to lower cloud service fee as a result of system optimization. The Q-over-Q decrease was mainly due to lower market information fee and the data transmission fee. As a result, total gross profit was HK$2.2 billion, increase of 56% from HK$1.4 billion in the first quarter of…

Thank you. [Operator Instructions]. We now have the first question ready. And this is from the line of Chiyao Huang from Morgan Stanley. Please go ahead.

[Foreign Language] So my first question is around the overseas expansion and we have been seeing very encouraging progress in Singapore in the first quarter. So management could give more color on the U.S. and Australia market developments. And also regarding the new entrants in Malaysia market any plans and also localization in that market will be greatly appreciated. And second question is around the latest regulatory change with the removal of the Futubull app from the onshore app stores. And just wondering how would that impact the existing onshore users their experience? And how is the Company's plan to continue to provide high quality service to those existing clients? And maybe longer term how does management think about the existing TAM at the time of existing onshore clients would change going forward now. So how would the Company change going forward? Thank you.

Thank you, Chiyao. I think the first question, Daniel and Robin can give you some colors about our first quarter achievements in Australia and in the U.S. Also our ambition plans for entering to Malaysia potentially in the second half of this year. For your second question about, you know CSRC, the maintenance regulation implications, I think Leaf will give you some more colors in terms of the implication of existing users, I can just supplement some initial data in the past week, which we observed, hopefully it will be helpful to you.

[Foreign Language] So for Malaysia, we just received the approval in principle for the Capital Markets License from Securities Commission Malaysia. And next, we'll start building local team and work on product and research and development. So far, we haven't set a date for the official launch in Malaysia and we'll update the market when we have more information. And in terms of the U.S. market, our growth in U.S. slowed down during the first quarter primarily because we were mapping out and optimizing our localization strategy with a focus on improving client quality. And we started to offer the U.S. multi-leg options trading function in the first quarter. And we will plan to launch advanced function and products such as bracket orders this year, while continuing to strengthen the core product capability around U.S. stocks and derivatives trading. And in the future, we'll also offer tailored investor education, contents, and activities to enhance brand awareness. Attract clients through superior product offerings and improve client quality. And for the Australian market, in the first quarter, our client acquisition Australia has increased. And after more than a year of brand building, our brand awareness in Australia continue to improve. And based on our market research and owning on our target client profile and have adopted different methods to cultivate brand awareness and acquire clients with different backgrounds. We plan to continue to launch product functions and develop deeper customer insights in Australia. [Foreign Language] So based on CSRC's announcement on December 13th and the statements made on February 15th in response to a question from reporters. The existing client's tradings will now be affected and the existing clients can continue to trade through their existing offline financial institutions. And so these existing clients deposit more funds it is allowed as long as they satisfy the requirements [Indiscernible]. And currently, where our existing clients, all of their trading activities and some deposit activities are as usual and besides the regulators further clarified that existing clients are defined as clients that already have trading accounts with actual brokers. So for Mainland Chinese clients they have opened trading accounts with other Hong Kong brokers, we are allowed to open accounts for them. And the fund deposits and stock transfer from other brokers to us are also allowed by the regulators. And in terms of our app upgrades, we have issues guidance’s on our website and our app to guide clients on how to timely upgrade up to the latest version. And we think our current services to the existing clients are not jeopardized. And if they have questions during the upgrades, they can call our customer service line and ask questions through the app at any time. And we resolve client requests very timely. Thank you.

Yes. And also I want to supplement, if I may, some initial observations since we published announcement to remove our app from domestic Apple stores last Tuesday. We are very delighted that it seems that our existing China clients' population are very calm about this headline news. We do not see any meaningful abnormal churn rates and also the client net asset outflow in the past week.

[Foreign Language]

Thank you. We'll now take our next question. Please stand by. This is from the line of Cindy Wang from China Renaissance. Please go ahead.

[Foreign Language] So thanks for taking my questions. So I have two questions. First question is related to commission rate. So the commission rate has slightly down sequentially. So may I know what's the reasoning behind it? Is that because of U.S. stock refund impacted or the lower derivative trading in the first quarter. The second question is since we've seen the news about Futu is going to open the first shop in Hong Kong, could management let us know what kind of the services the shop will provide and could investors open trading account through the shop in the future? Thank you.

Thank you, Cindy. I will take the first question and for your second question, Leaf will answer it. In terms of commission rates, you are right. I think the fluctuation is due to the two reasons you both mentioned. Number one, is primary is due to the U.S. stock trading pattern as we elaborate to the market several times. It is more due to the U.S. markets rebound especially for these tech names, big tech names in the first quarter. I think going forward, we do not feel any strong competition in terms of pricing in Hong Kong and in other markets. Of course, there will be some natural fluctuations from quarter-to-quarter perspective due to the U.S. stock trading pattern. And also in the second quarter so far, given the market is trading in a very narrow range point. So what we see the client's activities on the derivative side, especially on the option and the future, start to be decreased on Q-on-Q level. So this will have some implications in the second quarter blended commissions. I hand over to Leaf for your second question.

[Foreign Language] We actually have plans to open offline stores for a while and we have been preparing for it. I think recently we are going through renovations with the offline stores. So have probably local attracted media attention. And the reason we opened this offline store was actually drawing inspirations from Apple's offline store. I think the store will help our potential clients better experience our product and services and also we can answer a lot of your questions face to face. As we continue to increase our client penetration in Hong Kong, I think the store will help us reach the clients that we are not able to reach through online channels and further expand our client acquisition channel. Thank you.

Thank you. And we'll now take our next question. Please standby. This is from the line of Zoey Zong from Jefferies. Please go ahead.

[Foreign Language] Thank you management for taking my questions. Congratulations on the solid results. And I have two questions. So first, could you please provide some color about our user acquisition strategy this year? We have noted that in Q1, our sales and marketing expenses and customer acquisition costs both declined sequentially. Recently, we have seen companies more promotion in Hong Kong. So just wondering what’s our user acquisition target and the cost in Q2 for year and the longer term. And my second question is about our strategies for wealth management business, where we launch our own fund products or do we just perform as a distributor? Thank you.

Thank you, Zoey. I will take both of your questions. I think number one, in terms of the client acquisition, you can see in the first quarter, they imply the CAC is roughly in line with what we achieved in the fourth quarter of last year. I think going forward despite, of course, second quarter should be even more challenging given the market conditions especially in Hong Kong. The index is trading in a very narrow range and that there is no meaningful IPO projects to the markets. So it will have some negative implication to our client acquisition. But having said that, I think overall our CAC target this year should be similar to compared with last year. Particularly in Hong Kong, we will continue to double down our efforts in terms of the market share gains not only just to the millennial generations which we used to take into. But what Leaf and Robin mentioned before, we were also focusing on these some new populations such as the female population and also the clients over the age of 40. Number two, in terms of wealth management, I think you're right. In the foreseeable future, our role will still be the facilitator or distributor to our clients. We do not have any confirmed the primary schedule of our plan to package our quarters by using our own money. Thank you.

Thank you.

Thank you. We will now take the next question. Please standby. This is from the line of Frank Zheng from Credit Suisse.

[Foreign Language] Thank you management. This is Frank from Credit Suisse. I have two questions. The first one is on the breakdown of interest income in terms of return on deposit and return on the margin financing and securities lending business. And similarly, what are the sizes of each component of interest expenses? And secondly, how should we think about the growth rate of operating expenses going forward? Will the Company take some measures to optimize the expenses? Thank you.

Thank you, Frank. I will take both of your questions. In terms of the breakdown of the interest income, as you can imagine, we are key beneficiaries of the U.S. rate of cycle. So, in the past several quarters you can see our interest income continue to increase sequentially largely due to the federal rate hike and also the liquidity situations in Hong Kong. So you can imagine the majority of our interest incomes come from the client's either cash deposits nowadays. Having said that, you can see our margin balance also increase the Q-over-Q in the first quarter. So the absolute contribution from margin business also is very healthy. In terms of your second question regarding the operating expenses, I think we have to get some guidance to the market in the last earnings call. We're looking for roughly 15% to 20% headcount increase year-over-year, primarily to support our international market expansion. Most of these headcount increase will be on the R&D side. Of course, there will be new overseas office opening. So there will be rep, associated, rental expenses and also the security activity colleagues be placed in these local markets. I think going forward, definitely there will be more some rigorous expenses control especially on the G&A expenses, which we can see there are still some room to further enhance. But I think in terms of the R&D, which we think it is not expenses to some extent, we think it is our investment. So, we will continue to make a huge effort on the R&D, which will be our core advantage compared with our peers. Thank you.

Thank you. We will now take the next question. Please stand by. This is from Leon Qi from Daiwa. Please go ahead.

[Foreign Language] Thanks for taking my question and congratulations on the very strong results. I have two questions. The first one is due on the regulations from the Mainland China side, we noticed that from CSRC's public announcements, one of the principles from the regulator is to effectively solve the existing users. Just wondering if management could share with us any color what's the latest stance from the regulator at the moment on the existing client base? And the second question is on the wealth management business. We did appreciate the very strong AUM growth on the wealth management business. From a longer term, just wondering how management sees the AUM of your wealth management business, which is the buy side business, how does your buy side AUM would compare with your sell side traditional brokerage AUM, just appreciate management give us any long term color on that. Thanks a lot.

Thank you, Leon. Maybe I take your second question first and leave the first question to Leaf to give you some more sharing about the regulations for the existing clients. You can understand we are actually a very dedicated apprentice of Schwab wealth in the United States. So I think a lot of lessons we learned from Schwab is that eventually want to be an asset aggregators for our users and provide their lifetime service, financial service down the road. So far, we do not set any specific targets in terms of portions between the wealth management AUM versus our clients trading AUM. But I think now the wealth management AUM roughly accounts to close to 10% of our total clients' assets. Hopefully, I hope such proportion will continue to increase to 20% to 30% in the next three to five years. Definitely, there will be a very long journey to go. As you can imagine, wealth management is a business, which time is your brand. But I think we are fully dedicated and fully commitment on these directions to rolling the snowball step by step. Now I will hand you over to Leaf for your first question about the Mainland regulations.

[Foreign Language] Based on this period of CSRC's announcement on December 30 and statements made on February 15, resolving existing business is to let clients churn naturally while providing them with proper services, not turning them away. Some clients with stop trading due to investment losses or when they need their funds for other purposes, which will lead to a natural churn for clients. And without new clients, the number of existing clients will reduce as time goes by. Thus, serving existing clients well, is the prerequisite for orderly resolving existing clients. Thank you.

Thanks a lot.

Thank you. We will now take our next question. Please standby. And this is from Han Pu from CICC. Please go ahead.

[Foreign Language] Firstly, could you please share more about why we choose Malaysia as our new market? And do we have more information to share about the market room, the competitive landscape, the local investor behaviour and the product supply in this market. And secondly, regarding the Singapore market, we see both the paying clients number and then average asset -- client assets keep growing quarter-over-quarter in the Singapore market. If we see the cohort of the first batch in the first quarter of 2021, like two years before, how was the average client asset and their follow on fund inflow? Have they reached the breakeven point and then they start to make deposit. Thank you.

Okay. Thank you. Maybe my colleague, Robin can answer the first question about the competitive landscape and also our competitive advantage in Malaysia. And I will take your second question. Robin, please.

[Foreign Language] So the population of Malaysia is around 33 million with the Chinese population accounting for about 20% and as of 2022, there were about 2.1 million active retail trading accounts from Malaysian stocks. While the number of trading accounts for U.S. stocks, Hong Kong and Singaporean stocks are in the hundreds of thousands and are constantly rising. And we observed that the retail participants in Malaysia are young and are highly accustomed to digitized products. And amount of new personal accounts opened in 2022 59% of them come from investors aged 23 to 45. Currently in Malaysia, the traditional bank affiliated securities firms are dominant while the online brokers started relatively late. However, due to the overall trend of younger retail investors and their high acceptance of internet products, we think there is huge potential for online brokers to further penetrate. In Mainland -- sorry, mainstream internet brokers such as Rakuten, iSPEED and MPlus are relatively small in scale, and their product capabilities are pretty basic with almost no social community operations. And on the other hand, our product capabilities have strong advantages including a wider variety of products, advanced market data and order types and rich fundamental and technical analysis tools. And in addition, the trading fees for foreign stocks like U.S. stocks are pretty high in Malaysia with each trade costing as much as US$10 to US$25 and Futu can greatly reduce the trading costs of these offshore stocks. And finally, we have an active social community, rich investor education materials and very strong internet operational capabilities, all of which we think can provide Malaysian investors with a very differentiated experience. Thank you.

Thank you, Daniel and Robin. For your second question, I -- we entered into Singapore markets roughly two years ago. So, the first batch of our clients, corporate assets increased by two to three times in the past two years. We are very encouraging to see the client's overall and also the client's retention. So, now for the first batch, two years clients, which we acquired two years ago, they have already surpassed our client's acquisition cost, which may contribute operating profit nowadays. I think we are extremely confident about our profitability and earning powers in the Singapore markets alone, not only just because of the -- our cohort will continue to enhance our ARPU and client assets. But more importantly, there will be a lot of initiative efforts to cutting the costs down, not only the operating costs, but also the clearing cost such as our U.S. stock trading, which we still deal with our Singapore based clients through our external partners. In the second half of this year, we do have a plan to gradually migrate our U.S. stock trading for Singapore clients from external partners to our internal U.S. clearing house. So this will also meaningfully decrease our cost relating to the U.S. stock trading which will further enhance our profitability in Singapore. Thank you very much.

That's very helpful. Thank you very much.

Thank you. And I will now hand the conference back to Yuan, for some closing remarks.

That concludes our call today. On behalf of the Futu management team, I would like to thank you for joining us. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you and goodbye.

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.